State R&D Tax Credits: The Double Benefit

Taxpayers have become more aware of the benefits offered through federal research and development (R&D) tax credits. The tax incentive is now meant to stimulate innovation and design in industries throughout the U.S. As you can see by watching this video, Engineered Tax Services wants to ensure that business owners and CPA firms with clients who can benefit from this tax incentive understand how the process works. What many taxpayers overlook is that most states offer the R&D tax credit as well.

Given the popularity of the federal R&D tax credit program, many states established their own R&D tax credit programs to promote growth and development as well as create new jobs. Now, close to 40 states offer R&D tax credits, with attractive benefits and special features. Each state has its own requirements and tax credit calculations, with some mirroring the requirements of the federal tax incentive. While the qualified research expense (QRE) must be conducted within state borders to qualify for the state R&D tax credit, the good news is that these expenses also qualify for the federal R&D tax credit—a double benefit!

Despite the differences in calculations from state to state, most states compute the R&D credit either by a comparison of the trend in QREs over time or by comparing QREs to gross receipts. Certain states have a higher credit percentage than others. Unlike federal R&D credits, some of the state’s credits are refundable when they are in excess of the taxpayer’s liability. In some states, tax credits can even be transferred or sold to other taxpayers within the same state.

The process for claiming the state R&D tax credit is fairly straightforward. In most states, the taxpayer completes a form and files it with their income tax return. Some states have an application with a deadline. Keep in mind that there are often state R&D tax credit caps, so you’ll want to get the application in far in advance of the deadline.

State-By-State R&D Tax Credits

The following provides each state’s information regarding their R&D tax credits:

States with R&D CreditTop Corporate Income Tax Rate
Alaska9.40%
Arizona6.97%
Arkansas6.50%
California8.84%
Colorado4.63%
Connecticut9.00%
Delaware8.70%
Florida5.50%
Georgia6.00%
Idaho7.40%
Illinois9.50%
Indiana7.00%
Iowa12.00%
Kansas7.00%
Kentucky6.00%
Louisiana8.00%
Maine8.93%
Maryland8.25%
Massachusetts8.00%
Michigan6.00%
Minnesota9.80%
Nebraska7.81%
New Hampshire8.50%
New Jersey9.00%
New Mexico7.60%
North Carolina6.00%
North Dakota5.20%
OhioNONE
Oregon7.60%
Pennsylvania9.99%
Rhode Island9.00%
South Carolina5.00%
TexasNONE
Utah5.00%
Vermont8.50%
Virginia6.00%
Wisconsin7.90%

Please note, the information was last updated in December of 2019 and is subject to change.

Learn More State R&D Tax Credits

The R&D tax experts at Engineered Tax Services have helped companies of all sizes across the U.S. identify and qualify these expenditures and receive the tax benefits they have been missing. Our process begins with an R&D Tax Credit Qualification Analysis to make sure your company qualifies for the R&D tax credit.

To learn more about federal and state R&D tax credits, please complete the form on this page. For immediate questions, call Engineered Tax Services at (800) 236-6519 or check out our R&D tax credit page for more information.

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Heidi Henderson

Heidi Henderson

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